Would you say yes to the opportunity to save 22% or more on things you already pay for? That’s exactly what Flexible Spending Accounts offer you—the chance to pay for routine expenses with money that is not taxed.
ABOUT FLEXIBLE SPENDING ACCOUNTS
When you use Flexible Spending Accounts (FSA), you use tax-free dollars to pay for:
- most medical, dental and vision care expenses that are not covered by your health plan (for example: copayments andhttp://www.payflex.com/ deductibles).
- dependent care expenses that allow you and your spouse to work or go to school (for example: day care or after-school programs).
Using tax-free dollars means that you spend less for these expenses and have more money to spend on other things you want and need.
SAVING MONEY WITH FLEXIBLE SPENDING ACCOUNTS
Let’s look at an example of how your FSAs may save you money: Assume that you pay about $1,500 each year on prescriptions, copayments, deductibles, and other medical expenses. In addition, you spend another $4,000 on child care. Compare your take-home pay when you use Flexible Spending Accounts and when you don’t:*You get reimbursed from your Healthcare and Dependent Care Flexible Spending Accounts As you can see, by reducing your taxable income, you increase your annual spending money by $1,210. (In most states, Flexible Spending Account contributions are also exempt from state taxes, so your savings could be even higher!)
FLEXIBLE SPENDING ACCOUNTS VS. TAX CREDITS OR DEDUCTIONS
Some dependent care expenses are currently eligible for tax credits. However, most people will find that they can save more by using a Dependent Care Flexible Spending Account than by using the tax credit. Some medical expenses are also tax-deductible. But did you know that if you want to take the tax deduction:
- Your healthcare expenses must be more than 7.5% of your adjusted gross income. Using the previous example, that’s about $1,800.
- You can only deduct the expenses that are more than 7.5% of your income. So in the above example, you’d have to have more than $1,800 in eligible expenses in order to take any deduction at all.
OTHER FLEXIBLE SPENDING ACCOUNT ADVANTAGES
- Even Out Irregular Expenses. Have you ever noticed how irregular medical expenses are? One month you could pay $300 out of pocket, and not pay a penny the next. By using a Healthcare FSA, your expenses are evenly distributed over the year because you make regular contributions to your FSA through payroll deduction. The money is always there to reimburse yourself if you have a big expense, or a lot of little ones, in a single month.
- Save Time and Clutter. If you want to accurately list these expenses on your income tax form, you need to keep track of your receipts and paperwork all year long. When you use your FSA, you send in your claims as often as you need to, so there’s no need to keep stacks of receipts and bills around for months—or even years.
HOW FLEXIBLE SPENDING ACCOUNTS WORK
Each pay period, you make a contribution to your Healthcare and/or Dependent Care FSA, just like you would a savings account. Then, like a savings account, when you need the money, you take it out. Just fill out a form and attach your receipts. Inspira Financial —the company Locke Lord has retained to act as the Plan Administrator—will reimburse you for the amount of expense. It’s that simple. For more information on eligible expenses and how to file a claim, please contact Inspira Financial at 800.284.4885 or www.inspirafinancial.com.
HOW MUCH TO CONTRIBUTE
The trick to using Flexible Spending Accounts (FSAs) is figuring out how much to contribute each pay period.
- If you contribute less than the amount of your actual eligible expenses, you miss out on some tax savings.
- If you contribute more than the amount of your actual eligible expenses, you give up the extra money. IRS rules state that, unlike a savings account, if you don’t use up the money in your account each year, you give up the leftover amount. So, it’s best to guess a little low when deciding how much to contribute.
- Remember to base your estimates on expenses you will incur during the plan year, which runs from January 1 – December 31, 2024.
OTHER POINTS TO REMEMBER
- Use it or lose it. The IRS rules state that if you have money left over in your Dependent Care Reimbursement Account after you have submitted all your claims for the plan year, you lose the amount that is left over. So be careful when calculating how much to contribute. Remember Locke Lord’s plan year is January 1st through December 31st. For calendar year 2024, the IRS allows for a $640 carryover of any unused Healthcare Flexible Spending Account money. Any amount over the $640 carryover will be forfeited, so be sure to plan wisely.
- To go negative or not to go negative? On January 1, the entire amount you plan to contribute to your Healthcare Flexible Spending Account for the whole plan year is available. So even if you have a big expense in January, you can be reimbursed right away, even if it means your account “goes negative” for a while. Dependent Care Flexible Spending Accounts cannot go negative. If your claim is for more than the balance of your account, PayFlex will hold your claim until you have the money in your account to cover it.
- Re-enroll every year. You must re-enroll in each of your Flexible Spending Accounts each year during Open Enrollment. Locke Lord cannot continue your account contributions from one plan year to the next if you don’t re-enroll every year.
- Eligibility ends when you leave the Firm. If you leave the Firm anytime during the plan year, you may be reimbursed for eligible expenses through your last day of employment at the Firm. Expenses incurred after your last day of employment cannot be reimbursed. Under the Healthcare FSA you have the option to continue participating through COBRA.
|
If you participate |
If you don’t participate |
|
| Annual salary before taxes | $65,000 | $65,000 |
Less:
|
-$1,500 |
-$0 |
| Taxable income | $59,500 | $65,000 |
Less:
|
-$13,090 |
-$14,300 |
| Take-home pay | $46,410 | $50,700 |
Less:
|
-$0* |
-$1,500 |
| Net pay you can spend | $46,410 | $45,200 |
| Tax savings | $1,210 | $0 |
FILING CLAIMS FOR REIMBURSEMENT
Inspira Financial is our retained administrator for processing Healthcare and Dependent Care Flexible Spending Account claims. To receive reimbursement from your account, you will need:
- a completed Claim Form
- copies of your itemized receipts, bills, etc.
Claims can be mailed, faxed, submitted online, or via the mobile app to Inspira Financial.
Calculating Your Contribution: Your Dependent Care FSA
| How much did you spend last year on… |
Amount |
| Day care / pre-school programs? | |
| Before- or after-school programs? | |
| Babysitters / nannies? | |
| Adult day care? | |
| Summer day camps? | |
| Plus any fee increases? | |
| Total: Regular expenses | = |
| / Number of paychecks you receive each year | / |
| = Amount to deposit into your account each pay period | = |
HOW MUCH YOU CAN CONTRIBUTE
There are limits on the amount you can contribute to your Flexible Spending Accounts during the plan year (January 1 – December 31).
Healthcare Account Limits
- A minimum of $25 per year
- A maximum of $3,200 per year
Dependent Care Account Limits
- A minimum of $25 per year
- A maximum of $2,500 if you are a married couple and file separate tax returns
- A maximum of $5,000 if you are a married couple and file a joint tax return
- A maximum of $5,000 if you are a single parent filing as “Head of Household.”
If there is ever a question about this benefit, or if there is a conflict between the information in this summary and the formal language of the Plan documents, the formal wording in the Plan documents will govern. Please note the benefits described in this summary may be changed at any time and do not represent a contractual obligation on the part of Locke Lord LLP.
